Entrepreneur Frank Song started his profession within the know-how funding banking observe of Stifel Monetary Corp., an American multinational funding financial institution with over 7,100 staff globally. There, he executed preliminary public choices, mergers and acquisitions, and leverage buyouts.
After leaving Stifel, Frank joined a number one technology-focused non-public fairness agency, which at the moment holds $9 billion in capital underneath administration, that invests in software program and technology-enabled companies firms.
Moreover, Frank Song was one of many high lecturers at UC Berkeley’s Alumni Affiliation, the place his lectures on gross sales, persuasion, psychology, technique, and negotiation had been made obtainable to the celebrated college’s 450,000 alumni.
Presently, Frank manages his personal capital, specializing in investing and constructing companies in what he calls “unsexy markets.” At this stage, his holdings are price over 8 figures.
So, what philosophy did Frank comply with to construct his investments? Properly, Frank chalks his success as much as specializing in not shedding cash, quite than earning profits.
He states, “One of the crucial vital ideas to earning profits is definitely to keep away from shedding cash in any respect price.”
Frank says that, via his expertise on the earth of funding, he’s observed, “Most individuals are solely centered on the upside and mentally have a good time all the cash they’ll make earlier than they even make the funding!” This enormously differs from how Frank decides to take a position, “Once I make investments large or small, most of my focus is on understanding the draw back and what number of potential methods there are to lose cash.”
He notes that his purpose for doing this isn’t, “as a result of I’m a pessimist.” Somewhat, it’s due to, “a quite simple, however sensible, purpose that comes all the way down to fundamental arithmetic. If you lose cash, each single p.c of funding loss magnifies how far more troublesome it is going to be to return to your unique stability, not to mention make a optimistic funding return.” Frank demonstrates his level with three examples.
He offers the primary instance, “Let’s say you might have $100, and also you lose 10%, so the worth is now price $90. Which means to show $90 again into your unique $100, you will want to make an 11% return.”
Though, “that looks as if not such a giant deal,” Frank explains, “when you begin to lose much more cash, the fundamental legal guidelines of arithmetic actually begin to work towards you.”
In his second instance, Frank illustrates this, “You could have $100 once more, however this time you lose 25%, so the worth is now price $75. Which means to show $75 again into your unique $100, you will want to search out an funding to make a 33% return!”
Frank’s last instance exhibits how dangerous investments can get even worse, “You could have $100 once more, however this time you lose 50%, so the worth is now price $50. Which means to show $50 again into your unique $100, you will want to search out an funding that can get you a 100% return on funding!”
Frank drives dwelling how essential it’s to keep away from losses by asking, “Is it simpler to keep away from shedding 50% or to search out an funding that can double in worth?” The apparent reply to this query proves, “the actual purpose why specializing in the draw back and avoiding funding losses is the important thing to constructing wealth and driving large funding returns.”